Both mainland and Hong Kong markets have become more active in recent days.
Hong Kong market turnover rose to over HK$90 billion while China’s A shares saw turnover surpass 450 billion yuan (US$65.38 billion).
It seems both markets have gained momentum to rally further after the holiday break.
As of Feb. 3, the number of active stock trading accounts held by mainland investors has dropped to 49.94 million, the first time the figure dipped below 50 million in nearly 20 months.
It hit 50.35 million a week after the Shanghai Composite Index reached a peak of 5,178 points on June 12, 2015.
Many investors who bought their shares last year had to hold them for months.
So as soon as there were upticks, many rushed to liquidate their positions while others even closed their accounts.
It’s typical behavior for retail investors to rush into a red-hot market and exit when things look depressed or stagnant.
The declining number of accounts could very well be the darkest moment before dawn.
Meanwhile, the number of individual investors with stock accounts worth over 100 million yuan has actually exceeded the level in mid-2015, a signal that smart money is moving against the herd.
The total turnover of A shares has recovered to nearly 460 billion yuan over the last two days, along with the rally of the Hang Seng Index.
That level is higher than the less than 300 billion yuan turnover before the Lunar New Year holiday.
It is quite possible that like last year, China equities will strengthen on hopes of supportive policy initiatives from the Two Sessions in March.
Expectations of investments from pension funds may further boost sentiment.
Given their prudent style of investing, pension funds tend to focus on blue-chip stocks, especially those related to themes like state-owned enterprise reform and supply-side reform.
That should also benefit the Hong Kong market, particularly undervalued blue chips and dual-listed stocks.
This article appeared in the Hong Kong Economic Journal on Feb. 10
Translation by Julie Zhu
[Chinese version 中文版]
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